As the world continues to endure the uncertainty and anguish bought by the invisible threat both to individual lives and the global economy, many politicians cling to the idea that once a vaccine against the COVID-19 disease is found, the return to normalcy will at last become possible. Governments will be willing to pay fortunes for the vaccine that works. And those who create an effective vaccine will earn fortunes. From a pharmaceutical point of view, health has no price. For many people, it has a cost. This is especially true in the US, the nation the most affected by the novel coronavirus that causes COVID-19 and a place where health care is ensured according to the logic of a lottery.
The US government set up Operation Warp Speed to fund research and development of a vaccine. On July 31, Reuters reported that the “US government will pay $2.1 billion to Sanofi SA and GlaxoSmithKline Plc for COVID-19 vaccines to cover 50 million people and to underwrite the drugmakers’ testing and manufacturing.” Presumably, the firms will be able to make a further profit from selling the resulting vaccines privately. This is a lucrative business.
The Latest Version of Russiagate
New York Times reporter Jeffrey Gettleman cites a very different initiative taken privately by a prosperous Indian company. The Serum Institute “announced a plan to make hundreds of millions of doses of an unproven inoculation” without a government grant. The Times calls it “a gamble” because there is no guarantee the vaccine being developed will be effective.
Normally, in the field of public health, wealthy companies don’t gamble, but Gettleman highlights a difference with the Serum Institute. “Serum is distinct from all other major vaccine producers in an important way,” he writes. “Like many highly successful Indian businesses, it is family-run. It can make decisions quickly and take big risks, like the one it’s about to, which could cost the family hundreds of millions of dollars.”
Here is today’s 3D definition:
In the mythical past of capitalism, the traditional model for startup businesses that heroically struggled to supply solutions to perceived needs and work on a human scale until it became the norm for them to be taken over by non-heroic investors driven only by the firm’s capacity to satisfy their own greed
Today’s pharmaceutical companies in the West represent the true spirit of modern capitalism, as defined by fabled theoreticians Friedrich von Hayek and Milton Friedman, who modeled its ethics of justified greed. The basic strategic principle consists of securing a monopolistic position to propose unique products at the highest possible price to customers who can afford them. That means the wealthy will always be served first.
Because pharmaceutical companies promise to improve public health, their executives are skilled at getting grants from public bodies to fund their research. Why should the firms take the risk of investing their own cash? But when publicly-funded research results in a viable product, the law of maximum profit means that it’s the company’s economic health, not public health that will benefit. For pharma executives, the role of governments is to gamble while they rake in the rewards.
Serum has decided to make an honest gamble by investing in its industrial capacity to serve the public, without government help. Its ultimate impact on public health will prove even more essential than creating a new product. It will supply the product to those who need it, basically at cost. The company is tooling up at its own expense to ensure the industrialization and rapid distribution of what many recognize as the most promising vaccine now being developed by an Oxford University laboratory in partnership with the pharmaceutical giant, AstraZeneca.
The young CEO of Serum, Adar Poonawalla, has dared to violate both sacred principles of today’s profit-spinning capitalism: get others to put up the money and focus on maximizing profits through sales. Instead of appealing only to those who can afford it, the company’s vision targets those who need it. Poonawalla promises to “split the hundreds of millions of vaccine doses he produces 50-50 between India and the rest of the world, with a focus on poorer countries,” The Times reports. Profits will come later because “during the pandemic they will charge an amount that is no more than its production costs.”
The Poonawallas are worth more than $5 billion. How could intelligent billionaires be so addle-brained as to make investments that “could cost the family hundreds of millions of dollars” only to sell the product at cost? Shouldn’t this be seen as an act of betrayal of the billionaire class and the ethical rules established by von Hayek and Friedman?
The Wire sums up its takeaway from Gettleman’s story: “[T]he New York Times also reported that India’s Serum Institute is uniquely positioned because it is rich and isn’t beholden to shareholders.” Can it be that, contrary to Senator Bernie Sanders’ bold and philosophically reasonable assertion that “billionaires should not exist,” the Poonawallas have provided proof that at least two billionaires — father and son — should exist?
The Poonawallas are exceptions, but only because they have managed to remain a family business. Despite its size, the Serum Institute is a relic of the history of capitalism as it emerged in the 19th century before being overtaken in the 20th century by convergent financial and market forces. By laying bare the working principles of capitalism, Karl Marx himself may have helped capitalists to understand that the key to maximum profit was maximum clout. To make sense today, any serious project must follow the logic and “science of venture capital” or private equity. If the family business provided the old mythical foundation of capitalist venture, the new and equally romanticized model supposes two geniuses who build their idea in a garage before inviting in the investors who sense the promise of a monopoly that will eventually be gobbled up by a very rich company or go public.
In some respects, the Poonawalla family has managed to conform to the modern model of capitalism. “Adar Poonawalla acknowledged that his family was better known for ‘being seen in some fancy car or a jet or whatever,’ than making lifesaving vaccines,” The Times reports. But that is more about how class is perceived than economic reality. It has special meaning in India with its persistent caste ideology. In every society, the super-rich must decide how to show off or hide their wealth. Westerners give more importance to vaunting their capacity to manage rather than flaunt it. That correlates with the fact that India has more family-run businesses than most other countries.
Only a family-run business could dare to announce this strategy: “After the pandemic passes, Mr. Poonawalla expects that he will be able to sell the vaccine at a profit — if it works — but his biggest concern is the near term and covering his cash flow,” Jeffrey Gettleman writes.
It is true that for two decades, American billionaire Jeff Bezos violated the logic of traditional investors by refusing to aim for profitability. He kept Amazon focused on market positioning, the hope of achieving monopoly status. It worked, as has now become obvious. His company can no longer avoid making a profit, even when he continues to try.
The Times article sums up the unorthodox capitalist logic of Serum in these terms: “Mr. Poonawalla said he felt an obligation to take this risk.” In his own words, “We just felt that this was our sort of moment.”
The risk is real. Family businesses are more fragile than investor-led companies. The ultimate tragedy of the story may still be in the offing. In the end, the family may have to compromise the liberty that has allowed it to step forward with this project. The company’s and the family’s finances alone will be strained beyond capacity even in the case of success. “For the first time, the Poonawallas say they are considering turning to sovereign wealth or private equity funds for help,” reports Gettleman.
Peering into the future, the article then evokes the possibility of seeking “financial help from the Bill & Melinda Gates Foundation … or maybe the Indian government.” It is the iron law of global capitalism. Every dream of continued independence is doomed to end someday. It is downright Darwinian. That is the world even rich Indian family businesses interested in responding to humanity’s needs are condemned to live in and adapt to.
*[In the age of Oscar Wilde and Mark Twain, another American wit, the journalist Ambrose Bierce, produced a series of satirical definitions of commonly used terms, throwing light on their hidden meanings in real discourse. Bierce eventually collected and published them as a book, The Devil’s Dictionary, in 1911. We have shamelessly appropriated his title in the interest of continuing his wholesome pedagogical effort to enlighten generations of readers of the news. Click here to read more of The Daily Devil’s Dictionary on Fair Observer.]
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